Achieving%20Competitive%20Advantage%20with%20Information%20Systems

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Achieving Competitive Advantage with Information
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Essentials of Business Information
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STUDENT LEARNING OBJECTIVES

• How does Porters competitive forces model help
  companies develop competitive strategies using
  information systems?
• How do the value chain and value web models help
  businesses identify opportunities for strategic
  information system applications?
• How do information systems help businesses use
  synergies, core competencies, and network-based
  strategies to achieve competitive advantage?

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Essentials of Business Information
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STUDENT LEARNING OBJECTIVES (Continued)

• How do competing on a global scale and promoting
  quality enhance competitive advantage?
• Evaluate the role of business process
  reengineering (BPR) in enhancing competitiveness.

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Essentials of Business Information
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Apples iTunes Musics New Gatekeeper

• Problem Taking advantage of opportunities from
  new and disruptive technology, staying ahead of
  traditional competitors.
• Solutions Launched iPod and set up iTunes Music
  Store to create a marketplace for portable,
  downloadable music.

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Essentials of Business Information
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Apples iTunes Musics New Gatekeeper

• Partnerships with artists and recording labels
  allow iTunes to supply exclusive content in
  return for driving sales and increasing groups
  popularity.
• Illustrates digital technologys role in gaining
  and maintaining a competitive advantage.

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Essentials of Business Information
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Apples iTunes Musics New Gatekeeper
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Essentials of Business Information
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Using Information Systems to Achieve Competitive
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Porters Competitive Forces Model

• Way to understand competitive advantage
• Five competitive forces shape fate of firm
• Traditional competitors
• Competitors in market space continuously devise
  new products, new efficiencies, switching costs
• New market entrants
• Some industries have low barriers to entry
• E.g. food industry vs. microchip industry
• Newer companies may have advantages
• Newer equipment, younger workforce, etc.

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Essentials of Business Information
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Porters Competitive Forces Model

• Substitute products and services
• Substitutes customers can purchase if your prices
  too high
• E.g. Internet music service vs. CDs
• Customers
• Can customers easily switch to competitors
  products?
• Can customers force firm and competitors to
  compete on price alone (transparent marketplace)
• Suppliers
• The more suppliers a firm has, the greater
  control it can exercise over suppliers

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Essentials of Business Information
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Porters Competitive Forces Model
In Porters competitive forces model, the
strategic position of the firm and its strategies
are determined not only by competition with its
traditional direct competitors but also by four
forces in the industrys environment new market
entrants, substitute products, customers, and
suppliers.
Figure 3-1
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Essentials of Business Information
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Using Information Systems to Achieve Competitive
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Information System Strategies for Dealing with
Competitive Forces

• Basic strategy Align IT with business objectives
  
• 75 of businesses fail to align their IT with
  their business objectives, leading to lower
  profitability
• To align IT
• Identify business goals and strategies
• Break strategic goals into concrete activities
  and processes
• Identify metrics for measuring progress
• Determine how IT can help achieve business goals
• Measure actual performance

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Essentials of Business Information
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Information System Strategies for Dealing with
Competitive Forces

• Low-cost leadership
• Use information systems to achieve the lowest
  operational costs and the lowest prices
• E.g. Wal-Mart
• Inventory replenishment system sends orders to
  suppliers when purchase recorded at cash register
• Minimizes inventory at warehouses, operating
  costs
• Efficient customer response system

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Essentials of Business Information
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Wal-Marts continuous inventory replenishment
system uses sales data captured at the checkout
counter to transmit orders to restock merchandise
directly to its suppliers. The system enables
Wal-Mart to keep costs low while fine-tuning its
merchandise to meet customer demands.
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Essentials of Business Information
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Information System Strategies for Dealing with
Competitive Forces

• Product differentiation
• Use information systems to enable new products
  and services, or greatly change the customer
  convenience in using your existing products and
  services
• E.g. Googles continuous innovations, Apples
  iPhone
• Use information systems to customize, personalize
  products to fit specifications of individual
  consumers
• Dell
• Lands Ends mass customization

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Essentials of Business Information
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On the Dell Inc. Web site, customers can select
the options they want and order their computer
custom built to these specifications. Dells
assemble-to-order system is a major source of
competitive advantage.
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Information System Strategies for Dealing with
Competitive Forces

• Focus on market niche
• Use information systems to enable specific market
  focus, and serve narrow target market better than
  competitors
• Analyzes customer buying habits, preferences
• Advertising pitches to smaller and smaller target
  markets
• E.g. Hilton Hotels OnQ System
• Analyzes data collected on guests to determine
  preferences and guests profitability

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Interactive Session Organizations Can Detroit
Make the Cars Customers Want?

• Read the Interactive Session and then discuss the
  following questions
• Why is AutoNation having a problem with its
  inventory? Why is this also a problem for auto
  manufacturers such as GM, Ford, and Chrysler? How
  Is this problem impacting the business
  performance of AutoNation and of the auto
  manufacturers?

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Interactive Session Organizations Can Detroit
Make the Cars Customers Want?

• What pieces of data does AutoNation need to
  determine which cars to stock in each of its
  dealerships? How can it obtain these data?
• What is AutoNations solution to its problem?
  What obstacles must AutoNation overcome to
  implement its solution? How effective will the
  solution be?

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Essentials of Business Information
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Using Information Systems to Achieve Competitive
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Information System Strategies for Dealing with
Competitive Forces

• Strengthen customer and supplier intimacy
• Strong linkages to customers and suppliers
  increase switching costs and loyalty
• Chrysler Uses IS to facilitate direct access
  from suppliers to production schedules
• Permits suppliers to decide how and when to ship
  suppliers to Chrysler factories, allowing more
  lead time in producing goods.
• Amazon Keeps track of user preferences for
  purchases, and recommends titles purchased by
  others

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Essentials of Business Information
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Information System Strategies for Dealing with
Competitive Forces

• Some companies pursue several strategies at same
  time
• Dell emphasizes low cost plus customization of
  products
• Parker Hannifin offers products with unique
  features but competes on price
• Successfully using IS to achieve competitive
  advantage requires precise coordination of
  technology, organizations, and people

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Interactive Session People Parker Hannifin Finds
the Right Price

• Read the Interactive Session and then discuss the
  following questions
• What is strategic pricing? How does it work? What
  data are required?
• What role do information systems play in
  strategic pricing? What role do people play in
  getting a strategic pricing system to work?
• What kind of impact does strategic pricing have
  on a business such as Parker Hannifin?
• What other kinds of businesses could benefit from
  strategic pricing?
• How are value chain and competitive forces
  analysis related to Parker Hannifins strategic
  pricing?

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The Internets Impact on Competitive Advantage

• Enables new products and services
• Transforms industries
• Increases bargaining power of customers and
  suppliers
• Intensifies competitive rivalry
• Creates new opportunities for building brands and
  large customer bases

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The Internets Impact on Competitive Advantage

• Existing competitors Widens market, increasing
  competitors, reducing differences, pressure to
  compete on price
• New entrants Reduces barriers to entry (e.g.
  need for sales force declines), provides
  technology for driving business processes
• Substitute products and services Facilitates
  creation of new products and services
• Customers bargaining power Bargaining power
  shifts to customer
• Suppliers bargaining power Procurement over
  Internet raises power over suppliers, suppliers
  can benefit from reduced barriers to entry and
  elimination of intermediaries

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The Business Value Chain Model

• Highlights specific activities in a business
  where competitive strategies can best be applied
  and where information systems are likely to have
  a strategic impact
• Primary activities
• Support activities
• Benchmarking
• Best practices

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The Value Chain Model
This figure provides examples of systems for both
primary and support activities of a firm and of
its value partners that would add a margin of
value to a firms products or services.
Figure 3-2
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Essentials of Business Information
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Extending the Value Chain The Value Web

• A firms value chain is linked to the value
  chains of its suppliers, distributors, and
  customers
• A value web is a collection of independent firms
  that use information technology to coordinate
  their value chains to produce a product
  collectively
• Value webs are flexible and adapt to changes in
  supply and demand

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The Value Web
The value web is a networked system that can
synchronize the value chains of business partners
within an industry to respond rapidly to changes
in supply and demand.
Figure 3-3
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Synergies, Core Competencies, and Network-Based
Strategies

• Synergies
• When output of some units can be used as inputs
  to other units
• When two firms can pool markets and expertise
  (e.g. recent bank mergers)
• Lower costs and generate profits
• Enabled by information systems that ties together
  disparate units so they act as whole

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Synergies, Core Competencies, and Network-Based
Strategies

• Core competency
• Activities for which firm is world-class leader
• E.g. worlds best miniature parts designer, best
  package delivery service
• Relies on knowledge that is gained over many
  years of experience as well as knowledge research
• Any information system that encourages the
  sharing of knowledge across business units
  enhances competency
• E.g. Procter Gamble uses PG uses intranet to
  help people working on similar problems share
  ideas and expertise

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Synergies, Core Competencies, and Network-Based
Strategies

• Network-based strategies
• Network economics
• Marginal costs of adding another participant are
  near zero, while marginal gain is much larger
• E.g. larger number of participants in Internet,
  greater value to all participants
• Virtual company
• Uses networks to link people, resources, and ally
  with other companies to create and distribute
  products without traditional organizational
  boundaries or physical locations

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Disruptive Technologies Riding the Wave

• Disruptive technologies
• Technologies with disruptive impact on industries
  and businesses, rendering existing products,
  services and business models obsolete, e.g.
• Personal computers
• World Wide Web
• Internet music services
• First movers vs. fast followers
• First movers of disruptive technologies may fail
  to see potential, allowing second movers to reap
  rewards (fast followers)

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Competing on a Global Scale
The Internet and Globalization

• Prior to Internet, competing globally was only
  option for huge firms able to afford factories,
  warehouses, and distribution centers abroad
• The Internet drastically reduces costs of
  operating globally
• Globalization benefits
• Scale economies and resource cost reduction
• Higher utilization rates, fixed capital costs,
  and lower cost per unit of production
• Speeding time to market

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Competing on a Global Scale
An HP Laptops Path to Market
Hewlett-Packard and other electronics companies
assign distribution and production of their
products to a number of different countries.
Figure 3-4
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Essentials of Business Information
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Competing on a Global Scale
Global Business and System Strategies

• Domestic exporters
• Heavy centralization of corporate activities in
  home country
• Multinationals
• Concentrates financial management at central home
  base while decentralizing production, sales, and
  marketing to other countries
• Franchisers
• Product created, designed, financed, and
  initially produced in home country but rely on
  foreign units for further production, marketing,
  and human resources
• Transnationals
• Regional (not national) headquarters and perhaps
  world headquarters optimizing resources as
  needed

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Competing on a Global Scale
Global System Configurations

• Centralized systems
• All development and operation at domestic home
  base
• Duplicated systems
• Development at home base but operations managed
  by autonomous units in foreign locations
• Decentralized systems
• Each foreign unit designs own solutions and
  systems
• Networked systems
• Development and operations occur in integrated
  and coordinated fashion across all units

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Competing on a Global Scale
Global Business Organization Systems
Configurations
The large Xs show the dominant patterns, and the
small Xs show the emerging patterns. For
instance, domestic exporters rely predominantly
on centralized systems, but there is continual
pressure and some development of decentralized
systems in local marketing regions.
Figure 3-5
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Essentials of Business Information
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Competing on Quality and Design
What Is Quality?

• Producer perspective
• Conformance to specifications and absence of
  variation from specs
• Customer perspective
• Physical quality (reliability), quality of
  service, psychological quality
• Total quality management (TCM)
• Quality control is end in itself
• All people, functions responsible for quality
• Six sigma
• Measure of quality 3.4 defects/million
  opportunities

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Competing on Quality and Design
How Information Systems Improve Quality

• Reduce cycle time and simplify production process
• Benchmarking
• Use customer demands to improve products and
  services
• Improve design quality and precision
• Computer-aided design (CAD) systems
• Improve production precision and tighten
  production tolerances

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Competing on Quality and Design
Computer-aided design (CAD) systems improve the
quality and precision of product design by
performing much of the design and testing work on
the computer.
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Competing on Business Processes
Business Process Reengineering

• Tasks are streamlined to eliminate repetitive and
  redundant work
• Mortgage banks have been great beneficiaries of
  BPR, achieving remarkable leaps forward in
  efficiency
• Workflow management
• Streamlines business procedures so documents can
  be moved easily and efficiently
• Automates processes
• Eliminates delays
• Allows simultaneous work

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Competing on Business Processes
Steps in Effective Reengineering

• Understanding what business processes need
  improvement
• Understanding how the improvements will help the
  firm execute its strategy
• Understanding and measuring the performance of
  existing processes as baselines
• Managing change

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Competing on Business Processes
Redesigning Mortgage Processing in the United
States
By redesigning their mortgage processing systems
and the mortgage application process, mortgage
banks are able to reduce the costs of processing
the average mortgage from 3,000 to 1,000 and
reduce the time of approval from six weeks to one
week or less. Some banks are even preapproving
mortgages and locking interest rates on the same
day the customer applies.
Figure 3-6A
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Essentials of Business Information
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Competing on Business Processes
Redesigning Mortgage Processing in the United
States
Figure 3-6B
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Essentials of Business Information
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Competing on Business Processes
Redesigning Mortgage Processing in the United
States
Figure 3-6C
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Essentials of Business Information
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Competing on Business Processes
Redesigning Mortgage Processing in the United
States
Figure 3-6D